One refreshing sign of hope for constructive change is that economists, some of whose theories had much to do with a light regulatory approach toward derivatives and the housing bubble, are increasingly producing research calling for stricter guidelines than Dodd-Frank or the Obama administration. Regulating Wall Street presents a wide range of new research supporting stronger regulations than Dodd-Frank recommends, such as the tax proposals I mentioned earlier. In Reforming US Financial Markets, Robert Shiller also describes new economic theories that take into account more realistic appraisals of how Wall Street works and demonstrates why more effective regulation is necessary. The old theory of rational markets, which laid the groundwork for light regulation, "is one of the most remarkable errors in the history of thought," Shiller writes. He believes that regulators can and should decide to raise capital requirements during periods of excessive speculation.

In the prologue of Regulating Wall Street, the editors, hardly known as progressives, remind financiers how useful strong regulations were in the past:

Many players on Wall Street and in corporate America in the 1930s hated the new regulatory regime imposed on them.... But in the long run...the new regulatory regime was one of the best things that ever happened for Wall Street and corporate America. Why? Because it created confidence among investors--then and in the decades to follow--that Wall Street finally had become a level playing field.

We would be far better off if the powers on Wall Street would remember this lesson.

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The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).